BCE posts profit, plans Internet-TV launch

By Susan Taylor

5 Min Read

<p>The offices of BCE Inc. are seen in Montreal, June 20, 2008.Shaun Best</p>

OTTAWA (Reuters) - BCE Inc, Canada's biggest communications company, posted a return to fourth-quarter profit and sturdy wireless growth on Thursday, as it announced plans to roll out Internet television in 2010.

BCE launched a new high-speed network and an expanded line of smartphones on November 4, resulting in a record-setting 523,000 new subscriber activations in the quarter, and a 39 percent jump in net customer additions to 163,000.

While Canada's wireless market is poised for more competition from such new entrants as Globalive, BCE said it targets getting a third of all net customer additions in 2010 in the post-paid, or longer-term, market dominated by BCE and its two big rivals, Rogers Communications and Telus Corp.

For 2010, BCE forecast adjusted earnings per share of C$2.65 to C$2.75, up from C$2.50 in 2009, and free cash flow of C$2 billion to C$2.2 billion, up from C$1.45 billion in 2009. It sees revenue at its key Bell wireless and wireline business rising by 1 percent to 2 percent from C$15 billion in 2009.

Analysts had forecast 2010 earnings per share of C$2.57 and revenue of C$18 billion, on average.

BCE shares gained 2.5 percent on its 2010 forecast, which some analysts called conservative.

"The biggest part of the story, in my view, is the amount of free cash flow that BCE is expecting to generate in 2010," said Desjardins Securities analyst Maher Yaghi in an interview.

"That is allowing the company to have flexibility in terms of increasing the dividend and also spending heavily on improving the competitive profile that they have."

National Bank Financial analyst Greg MacDonald said there is a good chance BCE will raise its C$1.74 annual dividend in 2010, and that is behind the upgrade of his rating on BCE stock to "outperform" from "sector perform" and the increase in his share-price target to C$32 from C$30.

BCE, which sells telephone, Internet and satellite-TV services, announced plans to expand its high-speed networks.

The company plans to build fiber-to-the-home connections in Quebec City over the next three years. It will also roll out the same high-speed connections to all new housing developments in the provinces of Ontario and Quebec, starting in the second half of 2010.

While fiber installation costs about C$250 more per location, it pays off with substantial operating savings, Chief Executive George Cope said on a conference call with analysts.

New high-speed Internet service available in Montreal and Toronto will support the launch of Bell's Internet protocol television later this year. So-called IPTV is already in extensive customer trials, BCE said.

PROFIT MATCHES EXPECTATIONS

BCE's fourth-quarter profit compares with a year-earlier loss, when it took big charges.

Net earnings came in at C$350 million ($327 million), or 46 Canadian cents a share, compared with a loss of C$48 million, or 6 Canadian cents, a year earlier.

Revenue rose 3.9 percent to C$4.65 billion.

Adjusted earnings fell to C$387 million, or 51 Canadian cents a share, from C$441 million, or 55 Canadian cents.

Analysts had expected a profit of 51 Canadian cents and revenue of C$4.58 billion on average, according to Thomson Reuters I/B/E/S.

Profit was buoyed by extensive cost-cutting at BCE, which has slashed 5,800 jobs since June 2008, including a 22 percent reduction in management staff. In the fourth quarter, it cut 830 jobs.

In 2010, it expects to see savings of C$50 million to C$60 million from renegotiated outsourcing contracts.

In contrast to BCE, Manitoba Telecom Services reported a sharp drop in fourth-quarter profit on Thursday, which the regional telecom company said reflected non-operating issues, such as charges associated with tax adjustments.

MTS said earnings fell to C$6.7 million, or 10 Canadian cents a share, from C$13.7 million, or 21 Canadian cents a share, a year earlier.

Earnings from continuing operations fell to 59 Canadian cents a share from 61 Canadian cents, it said.

Shares of BCE gained 69 Canadian cents to end at C$28.31 on the Toronto Stock Exchange on Thursday and added 35 cents to close at $26.39 in New York.

MTS stock closed down 22 Canadian cents at C$32.71. It released its results after markets closed.